Needless to say, SPAC stocks took off in 2020.
SPACs, or special purpose acquisition companies, provide an alternative to traditional initial public offerings (IPOs). This year, private companies looking to go public chose that alternative in droves.
Why? Well, one advantage to the SPAC route is certainty. SPACs already have raised the desired capital through their own IPOs. In contrast, the usual process takes months. Plus, companies run the risk of the plug being pulled if market conditions turn south in a hurry.
Pricing is another consideration. IPOs aren’t priced until days before they take place. On the other hand, SPACs are usually (though not always) priced at $10 per share and agree to merge at the same price.
March 2020 was literally the most volatile month in the history of the stock market. So, it’s little surprise that private companies turned to SPACs as an alternative. And the seemingly boundless optimism for them helped as well. According to Spactrack.net, 65 SPAC mergers closed in 2020, with an average gain of 64%.
And many more looked to get in the game. According to Goldman Sachs, 219 SPACs went public and raised $73 billion in proceeds this year. That figure was up 462% year-over-year (YOY). What’s more, SPAC IPOs attracted $6 billion more in capital than their more traditional counterparts.
Simply put, SPACs might have been the biggest trend of 2020. That’s no small feat. And these 10 SPAC stocks — which either went public, announced mergers, or completed mergers this year — were among the most fascinating of the group:
- Nikola (NASDAQ:NKLA)
- New Providence Acquisition (NASDAQ:NPA)
- CIIG Merger (NASDAQ:CIIC)
- QuantumScape (NYSE:QS)
- Stable Road Acquisition (NASDAQ:SRAC)
- DraftKings (NASDAQ:DKNG)
- Mountain Crest Acquisition (NASDAQ:MCAC)
- Foley Trasimene Acquisition (NYSE:WPF)
- Opendoor (NASDAQ:OPEN)
- Golden Nugget Online Gaming (NASDAQ:GNOG)
Fascinating SPAC Stocks: Nikola (NKLA)
Of all of the SPAC stocks, maybe no one has received more attention this year than NKLA stock. It’s not hard to see why: Nikola’s rise and fall was one of the most fascinating stories in the entire market, let alone in the special acquisition group.
But what’s particularly interesting about this story is that it started rather quietly. Nikola chose the SPAC route in early March, in what Forbes called a “surprise merger” at the time. Investors initially bid up shares of the acquirer, VectoIQ. However, even as markets recovered in the back half of the month, the company’s stock soon headed back down toward $10.
It wasn’t until May that the stock truly took off. Once it did, it roared from $12 to just $80 a few days after the merger closed in early June.
Of course, NKLA stock now is back at $17. Why? For one, a short-seller raised troubling allegations against the company and its founder, Trevor Milton. Plus, its touted deal with General Motors (NYSE:GM) was reworked into something far less impressive. Pretty soon, a company that seemed on the cusp of revolutionizing the trucking industry looked more like an assembler of third-party products.
Today, though, 2021 promises to be another interesting and potentially volatile year for the stock. NKLA has pulled back sharply from its highs, but it still has a market capitalization of $6.5 billion. That’s a big valuation against essentially zero revenue and a number of remaining questions.
So, it wouldn’t be surprising to see the stock keep falling in the new year, even if sector optimism stays. However, it also wouldn’t be a shock if Nikola managed to regain at least some measure of investor confidence.
New Providence Acquisition (NPA)
There have been a few feast-or-famine plays among the recent crop of SPAC stocks. For example, Virgin Galactic (NYSE:SPCE) — which actually closed it SPAC merger in 2019 — is one of the better-known ones. The company’s space tourism efforts could lead to the birth of an entirely new industry. However, with a few bad breaks, they could also lead to bankruptcy.
Once its merger with New Providence Acquisition closes, AST SpaceMobile will be added to that make-or-break list. The private company is looking to build out a satellite-based mobile network, at first along the Earth’s equator. That effort will initially target as many as 1.6 billion potential customers, with the noted advantage of providing 4G and 5G service “without any need for specialized hardware.”
But AST does have a chance. For example, it’s partnership with Vodafone (NASDAQ:VOD) provides significant backing and expertise. Additionally, the merger will put some $462 million in AST’s coffers. And, if the effort proves viable, it could be enormously profitable given the reliance on mobile services in many of the targeted areas.
However, the plan behind NPA stock could also go wrong in many ways. For one, a business focusing on emerging markets generally is higher risk. On top of that, satellite broadband hasn’t quite caught on yet and the private “space race” has led to a number of bankruptcies. Finally, AST will require significant capital — the company forecasts roughly $1.7 billion in capital expenditures simply for the first phase of development (Page 18). The merger alone won’t be able to cover that cost.
So, this is a high-risk, high-reward play. As such, it should be one of the market’s more interesting stories in coming years.
CIIG Merger (CIIC)
Nikola hasn’t been the only beneficiary of optimism toward the growth of electric vehicles (EVs). In fact, many EV plays have been boosted by the trend. What’s more, many are SPAC stocks, including CIIG Merger.
CIIG is merging with United Kingdom-based Arrival, a manufacturer of electric buses and vans. Arrival has an intriguing story. It has the potential to answer worldwide commercial EV demand across multiple end markets.
Of course — as is the case with so many SPACs — valuation remains a question mark. CIIC stock has soared to just under $28 from the merger price of $10. It also more than doubled in a few sessions early last month before the recent pullback.
Is that optimism justified? Or are the steep rallies in so many EV plays a sign of a bubble? The argument rages on at the moment. And, it likely won’t be settled for some time to come.
Investors who see a bubble in EV stocks — and EV SPAC stocks in particular — probably would highlight QuantumScape as “Exhibit A.” What was once Kensington Capital stock closed on Oct. 30 at $11.80, well after the merger had been announced. However, QS hit an intraday high of $132.73 on Dec. 22, less than two months later.
However, if QS stock was in a bubble, it’s already started to burst. The stock has now declined over 48% from that intraday high in a little more than a week. Yet, at this point the battery developer still has an extremely pricey market capitalization based on pro forma figures given by Kensington at the time of the merger. And that’s with revenue not expected until 2024.
At the moment, the QS chart looks an awful like NKLA did over the summer. So, the question for the stock right now is whether or not it can avoid Nikola’s outcome without Nikola’s problems.
Stable Road Acquisition (SRAC)
There’s probably a joke to be made about space companies going public via the SPAC route. There seems to be so many this year. Adding to the list, space cargo company Momentus is joining Virgin Galactic and AST in bypassing the traditional IPO process.
Like its space-based peers, Momentus is a boom-or-bust play. But the business model is fascinating. That’s because both governments and private companies will need to rely on cargo companies at some point. So, in an uber-bullish scenario, Momentus could be ferrying supplies for explorers to the moon or even to Mars, if admittedly decades from now.
SRA stock has seen a nice rally of late alongside other SPAC stocks. And whether that rally has gone too far essentially is impossible to decipher — reasonable investors can come up with very different estimates of fair value. But, at the very least, Stable Road and Momentus will be able to provide some entertainment value to the market.
When it comes to 2020’s SPAC revolution, investors could argue that DraftKings helped kickstart the boom. Few (if any) SPAC stocks could match DraftKings in terms of retail-investor interest before the company agreed to merge with Diamond Eagle near the end of 2019.
And certainly, the merger has been a success. DKNG stock has roared to nearly $50, up on a 363% rally over the past one year. Originally, the novel coronavirus looked like it would be a headwind for the company, which was still losing money. But investors pivoted to the long-term view — that a need for revenue across state governments would accelerate the legalization of sports betting and create faster-than-expected growth.
Interestingly, though, DKNG has somewhat stalled now. With a year-end fade, it sits only modestly above its early June highs.
But the stock could — and maybe should — start to play catch-up. The $19.5 billion valuation isn’t cheap, but the company does look like one of the early leaders in U.S. sports betting. Plus, benefits from its additional merger with SBTech haven’t arrived yet. So, as far as growth stocks go, DKNG looks intriguing at the very least right now.
Mountain Crest Acquisition (MCAC)
Next on my list of SPAC stocks is Mountain Crest Acquisition. As far as investments go, MCAC stock probably doesn’t look that exciting. However, Mountain Crest’s choice of merger partner has certainly turned some heads.
That’s because this SPAC is bringing Playboy back to the public markets. Founded in the 1950s, the adult lifestyle brand has pivoted away from its well-known magazine toward sexual wellness, apparel, fragrances and even digital gaming.
So far, investors have shrugged — MCAC stock sits at only 6.7% above the merger price. But, Playboy’s results for the first nine months of the year do show solid growth, even if profitability is somewhat lagging. That means it’s possible the Playboy brand is stronger than some might think, which would mean the same is true for Mountain Crest stock.
Foley Trasimene Acquisition (WPF)
For a list dedicated only to SPAC stocks, it’s worth highlighting at least one name that hasn’t found its merger partner yet. Under that criteria, Foley Trasimene is certainly one of the more interesting picks out there.
After all — at least to some extent — SPACs are only as good as their sponsors. And few (if any) have a better sponsor than Foley Trasimene, which is headed by William P. Foley.
Foley has built an empire around his Fidelity National Financial (NYSE:FNF) insurance company, which has led to multiple spin-offs and created tens of billions of dollars in shareholder value over time.
So, because of that track record, investors are optimistic toward WPF stock. Even without a deal, the stock has actually trended up from its $10 merger price. The possibility of an attractive target is one reason I highlighted the stock last month as a short-term play.
Plus, interestingly enouugh, Foley’s second SPAC called Foley Trasimene Acquisition II (NYSE:BFT) has found a partner in payments play Paysafe. Currently, BFT stock is already up to $15. Once WPF has a deal to announce, it could have a similar move of its own.
Bill Foley aside though, there probably isn’t a SPAC sponsor more well-known at this point than Chamath Palihapitiya.
That’s because Palihapitiya has now launched six SPACs. Most notably, he’s the person who took Virgin Galactic and Opendoor public. He’s also about to take Clover Health down the same road with Social Capital Hedosophia III (NYSE:IPOC).
However, Opendoor is the most intriguing of the Palihapitiya SPAC stocks so far. That’s because the real estate platform has a chance to revolutionize what is literally a trillion-dollar industry. In this market, it’s not surprising that investors rushed into the stock almost instantly.
But there are concerns. For one, margins will be thin. It’s also still not clear what extent algorithms can replace the traditional real estate brokerage process — at least not yet. Finally, competition is stiff as well.
Indeed, last month I expressed skepticism toward the stock at $26. Now, after a dip to $22 and a jump up past $28, my concerns are still intact. Yes, Opendoor could be a huge winner. But it has a lot of hurdles to clear.
Golden Nugget Online Gaming (GNOG)
Last on my list is GNOG stock, an interesting barometer for SPAC stocks as a whole. The stock took off in November and December, much like the rest of its group. In fact, Golden Nugget saw an explosive rally into and out of its merger close last month, trading that is fairly common with SPACs but fundamentally shouldn’t make sense. The stock then pulled back in the last few sessions of 2020.
Like a number of recent SPACs, GNOG has some concerns as well. The company has focused on iGaming as opposed to sports betting, arguing that higher margins make that vertical more attractive. But competition from DraftKings and other sports-focused operators that can cross-sell to existing user bases — not to mention brick-and-mortar casino operators — seems a huge risk.
And even with the recent pullback to $19, that risk may not be priced in. Of course, when it comes to SPAC stocks, skepticism generally hasn’t paid off — and GNOG stock may be no exception. Today, the stock sits at just above $20.
On the date of publication, Vince Martin did not have (either directly or indirectly) any positions in the securities mentioned in this article.
After spending time at a retail brokerage, Vince Martin has covered the financial industry for close to a decade for InvestorPlace.com and other outlets.